For a secure retirement think outside the stock market box
April 26, 2012 Leave a comment
I see many clients who have allowed their retirement assets to fragment into many small holdings consisting of broadly market correlated stocks and mutual funds. This usually happens because they’ve had multiple jobs and either left assets with their previous employer’s 401K custodian or rolled the assets over to one of the big brokers. Often, they view these accounts as providing safety through diversification. But, more often than not, they are confusing complacency with strategic diversification. As long as the market is moving up they have that warm fuzzy feeling that “it’s all good.” Unfortunately, the market always corrects. And, when it does, it does so without warning and much faster than it went up. Having many small unmanaged positions with multiple brokers and advisers makes it impossible to get out quickly. That’s how many boomers lost 50% or more of their assets in 2009.
Speed trading will add a whole new dimension to the next correction. During the May 6, 2010 flash crash, which swung the DOW over 600 points in mere minutes and nearly 1000 points in one day, about 50% of the trading was algorithmic – done by machines. Today, it is estimated that only about 16% of trades are made by humans. Machines now control the market. Though they lack the collective consciousness of Skynet in the movie “The Terminator,” they are no less capable of terminating your retirement plans. These retirement terminators move vast amounts of capital in the blink of an eye. No mere human can hope to compete with these market monsters. At the next down turn they will take the market to its knees so fast you won’t even believe it. If you are not familiar with algorithmic trading, check out the following video clip from TV’s 60 Minutes.
I get really upset by all this because I have too many friends that have been financially crippled by stock market swings. That’s why I started my Safe Investments business back in 2009. I had already moved the bulk of my assets out of harm’s way. But most of my friends in the Tech industry had not. They took a real beating. To this day most have not recovered.
Many of the tried and true principles of the past still do apply. The Intelligent Investor by Benjamin Graham, first published in 1949, remains invaluable reading for all who would take on the market. On page 102 of the most current edition, Graham articulates the necessity to divide one’s assets between risk and safe investments. Sixty years ago government bonds where the logical safe financial instrument. Principle is still safe when placed in bonds. But, the low returns have resulted in excessive bond interest rate risk. In 1949 Graham didn’t need to move outside of the public securities markets for the safe portion of his portfolio. I think he would find today a somewhat different kind of challenge when it comes to “safe money.”
I founded Enterprise Benefits after the 20082009 melt-down to help others do what I had done – protect their retirement funds from a market melt-down. So far I have identified only 3 asset classes that meet my requirements for safety and growth. If you’d like to know what they are, attend one of my seminars or request a meeting.